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Last Updated: 11 August 2023
What does a lease extension calculator do?
Our 2023 lease extension calculator gives you an initial indication of how much we think you will need to pay to your freeholder to purchase an extra 90 years and remove your ground rent, as is your right under the Leasehold Reform Housing and Urban Development Act 1993.
The calculator shouldn’t be used as a substitute for our professional valuation advice. Our lease extension surveyors will collate the evidence required to both provide a more robust calculation of what your lease extension premium should be and negotiate that fair price with your freeholder.
How does the lease extension calculator work out the premium?
The lease extension calculation is split into three components:
Currently, your flat will revert to your freeholder at the end of the term.
When you extend your lease, your flat will not revert to your freeholder for an additional 90 years, and you must pay your freeholder to compensate them for this.
The calculator bases this sum on the length of your current lease and how much your flat would be worth with an extended lease.
Your freeholder looks forward to your annual ground rent payments. When you extend your lease, your ground rent is going to be set to £0, and they’re not going to receive these payments in the future.
When you extend your lease, you must pay a sum of money upfront to compensate them for the loss of this annual income stream.
You don’t have to pay all of the money upfront, as money today is worth more than money paid in the future – because you can put it in the bank and it will grow! As a result, this calculator applies a discount to each of the future payments to reflect this.
Does it calculate rising ground rents? It is worth noting that this lease extension calculator – and all others we’ve seen – do not base the calculation on rising ground rents. This is because this is a far more complex calculation and its requirements are based on the exact ground rent schedule in your current lease. For example, some flats have ground rents that double every 25 years, others have ground rents that increase with the value of the property. The calculations and assumptions used for each are quite different.
Whatever your flat is worth, once the lease is extended it will jump up in value when you extend the lease. Even considering the payment you will make to buy the extra years and buy out the ground rent, on paper you are going to make a hypothetical profit.
This lease extension calculates the hypothetical profit you will make. This is based on relativity graphs, which estimate the relative value of your flat with the existing number of years remaining, compared with what it is worth with a long lease.
The law requires you to share this hypothetical profit with your freeholder, and this lease extension calculator takes this into account.
What makes a good lease extension calculator?
The best lease extension calculators will be updated following any change to legislation or case law, to ensure that the figures produced by the calculator are as accurate as possible.
A recent update was based on the Deritend decision which favoured the use of an average of the Gerald Eve and Savills Unenfranchisable graphs.
Equally a good calculator should provide a range which is an accurate indication of what you might expect to negotiate the lease extension premium to be or have it determined at tribunal.
The range calculated should be wide enough to reflect the fact that there will be some variables involved, but narrow enough to be accurate.
For example, the Leasehold Advisory Service lease extension calculator has historically given a wide range. With this calculator the “Low” figure often has given an unrealistic figure and the “High” figure essentially advises leaseholders to pay too much.
What doesn’t this lease extension calculator do?
The first thing we should note is that a lease extension calculator is not a substitute for professional advice. You should not use the figures on Section 42 Notice or refer to them at tribunal.
This calculator doesn’t base the calculation on ground rents which rise throughout the term, which is mentioned in more detail in the section above about buying out your ground rent.
The lease extension calculator can’t consider the specifics of your case. For example, if you have a defective lease or your building has a complex title structure with multiple landlords, this may affect the lease extension calculation and the amount you would pay for your lease extension.
It also doesn’t include the professional costs of doing a lease extension. When you do a lease extension you need to pay for your own lease extension solicitors and surveyors but also pay your freeholder’s costs. If you use us, we work entirely on a fixed fee which is £2,325+VAT and you should budget the same again plus a little more for your freeholder’s costs.
Finally, if your lease extension premium is above £40,000 and you own multiple properties you may have to pay stamp duty. There is no HMRC lease extension calculator, but a good rule of thumb is that if your lease extension premium exceeds £40,000, you’ll need to pay 3% on the entire amount.